“Theenvironmentofuncertaintymeansbusinessesareunwillingtoinvestinnewofficespace. This is particularlythecaseinfinancialservices, wherepost-Brexitagreementsonpassportingandmovementoflabouraremajorconsiderationsandunknownsrightnow.

Investors less willing

The combination of a slowing economy, falling real wages and rising costs and falling real wages is expected to impact on new contract awards and activity during the second half of 2017 and in 2018.

Growth heavily dependent

Growth for 2018 is thus expected to rise by just 0.7%

This is the slowest in six years

This is a downward revision from 1.2% in previous forecasts

This is heavily reliant on increases in private house building and infrastructure delivery

Without growth in these two sectors, construction output will remain flat in 2017 and fall by more than 1% in 2018

For now, though, on-site activity is high and expected to rise by 1.6% in 2017, an upward revision from 1.3% in previous forecasts

Grenfell fire gives short-term boost

This will be partly due to a sharp rise from new contracts and activity in the £6.9bn public housing repair, maintenance and improvements sector. This is to deal with short-term urgent measures that will need to be made in light of the Grenfell Tower fire.

Falls in repair and maintenance work contributed to the fall in construction output in the UK in May 2017 of 1.2%, according to the Office for National Statistics in its report, published 7 July.

The extent of the urgent work is currently difficult to ascertain. However, the CPA expects that even if local authorities delay non-essential maintenance to focus on urgent fire safety work, it is likely to require additional resources.

Further cuts to public housing repair, maintenance and improvement are difficult to envisage in the light of this, says the CPA.

Infrastructure, housebuilding driving growth

Increases in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years. This will help offset a sharp fall in the commercial and industrial sectors.

Growth in infrastructure will be due to major projects in rail and water & sewerage such as HS2 and the Thames Tideway Tunnel. Activity is forecast to grow by 7.4% in 2017 and 6.4% in 2018. Growth will be reliant on delivery of these projects.

Rebecca Larkin says: “Hinkley Point C had been in our previous forecasts, but due to delays and cost overruns, main work is now not expected until beyond our forecast horizon, which spans 2017-2019.

“This emphasises the second key risk with overall construction growth driven by major infrastructure projects. It is moving from promises of multi-billion pound investment to getting work starting on the ground that is key to the forecast growth being achieved.”

Housing market metrics look pessimistic

While growth in 2018 will also be heavily reliant on private housebuilding, the CPA says that the majority of forward looking indicators that it tends to use for the housing market - mortgage approvals, property transactions and house prices – look pessimistic.

The sector is itself still reliant on Help to Buy equity loans to drive housebuilding numbers. Help to Buy is expected to support demand for new build and drive growth in private housing starts of 3% in 2017 and 2% in 2018.

This is slower than in previous years given the uncertainties over consumer confidence and falls in real earnings, referred to earlier. The policy is in place until 2021.

Looking further ahead

Looking further ahead, growth for 2019 is projected to be 1.8%. But the risks around this forecast are considerable given the unprecedented economic and political uncertainties following the lack of a significant majority for the UK government as the UK leaves the EU.

The CPA says Brexit could have considerable impacts upon the availability of construction labour and upon trade in construction materials and products. It assumes a five-year transition agreement or implementation period.

A period of 18 months is not enough to negotiate fully on all issues around movements of people, goods, services and capital, it adds.

Echoing IHS/Markit PMI figures

The CPA summer forecasts broadly echo the findings of the IHS/Markit purchasing managers’ survey last week. That showed UK builders recorded another growth slowdown in July, reflecting lower volumes of commercial building and a softer expansion of housing activity.

The latest survey also revealed a reduction in new business volumes for the first time since August 2016, which acted as a headwind to job creation and input buying across the construction sector.

Tim Moore, author of the report, said the growth slowdown is mainly driven by lower volumes of commercial development and a loss of momentum for house building.

Weaker contributions from the cyclically sensitive areas of construction activity more than offset resilience in the civil engineering sector, he added.

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